What are the differences between financial aid and a scholarship?

One of the key distinctions parents need to be aware of when navigating the college funding process is the difference between a scholarship and other aspects of a financial aid package. First and foremost, one could certainly make the case that a scholarship falls under the umbrella of financial aid, as it assists in helping finance a student's higher education career. However, there are plenty of differences from what financial aid generally entails and what scholarships offer.

Let's break this down by distinguishing factors.

Needs versus merit
First off, many families are unaware that there are two types of scholarships; need-based and merit-based. As the Princeton Review reported, merit based scholarships are not awarded based upon need. Need based scholarships are determined by the financial need and the economic stature of the family while merit based scholarships are awarded to students who have achieved greatness in some area of academics or extra-curricular activities.

Scholarships are the cream of the college funding crop. Scholarships are the cream of the college funding crop.

Grants and loans versus scholarships
Many financial aid packages will include grants and loans. Grants do not have to be paid back, and will generally come with performance-based demands. For example, some will be pulled out of the package should a student's grade point average slip below a designated score. Loans, of course, most often must be paid back.

Scholarships are similar to grants, though the sources are generally different, while the reasons why they are awarded tend to vary immensely. It is worth noting that grants and scholarships tend to be the best possible bet for a student when it comes to post-graduation debt. Financial aid packages – especially when they include loans – will not necessarily be cheap to pay off. Merit based scholarships will typically demand more legwork, as Shmoop noted, but are certainly worth the effort given the financial benefits compared to self-help aid packages (work-study and loans).

If you would like to learn more about the distinctions, as well as how to best position your student to receive scholarships, consider reaching out to our Smart TrackTM team of college funding experts.